LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 (FREE TRANSLATION) CONTENTS

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1 LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 (FREE TRANSLATION) CONTENTS Consolidated Statement of Financial Position Consolidated Statement of Income by Function Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Direct Method Notes to the Consolidated Financial Statements CLP CHILEAN PESO ARS ARGENTINE PESO US$ UNITED STATES DOLLAR THUS$ THOUSANDS OF UNITED STATES DOLLARS COP COLOMBIAN PESO BRL/R$ BRAZILIAN REAL THR$ THOUSANDS OF BRAZILIAN REAL VEF STRONG BOLIVAR

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4 Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries. Notes Page 1 General information Summary of significant accounting policies Basis of Preparation Basis of Consolidation Foreign currency transactions Property, plant and equipment Intangible assets other than goodwill Goodwill Borrowing costs Losses for impairment of nonfinancial assets Financial assets Derivative financial instruments and hedging activities Inventories Trade and other accounts receivable Cash and cash equivalents Capital Trade and other accounts payables Interestbearing loans Current and deferred taxes Employee benefits Provisions Revenue recognition Leases Noncurrent assets (or disposal groups) classified as held for sale Maintenance Environmental costs Financial risk management Financial risk factors Capital risk management Estimates of fair value Accounting estimates and judgments Segmental information Cash and cash equivalents Financial instruments Financial instruments by category Financial instruments by currency Trade, other accounts receivable and noncurrent accounts receivable Accounts receivable from/payable to related entities Inventories Other financial assets Other nonfinancial assets Investments in subsidiaries Intangible assets other than goodwill... 58

5 15 Goodwill Property, plant and equipment Current and deferred tax Other financial liabilities Trade and other accounts payables Other provisions Other nonfinancial liabilities Employee benefits Accounts payable, noncurrent Equity Revenue Costs and expenses by nature Other income, by function Foreign currency and exchange rate differences Earnings per share Contingencies Commitments Transactions with related parties Share based payments The environment Events subsequent to the date of the financial statements

6 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Note Current assets Cash and cash equivalents 6 7 Other financial assets 7 11 Other nonfinancial assets 12 Trade and other accounts receivable 7 8 Accounts receivable from related entities 7 9 Inventories 10 Tax assets , , ,871 1,378, , ,708 1,984, , ,617 1,633, ,028 81,890 Total current assets other than noncurrent assets (or disposal groups) classified as held for sale or as held for distribution to owners 3,633,560 4,977,104 Noncurrent assets (or disposal groups) classified as held for sale or as held for distribution to owners 1,064 2,445 Total current assets 3,634,624 4,979,549 Noncurrent assets Other financial assets ,986 Other nonfinancial assets Accounts receivable Equity accounted investments Intangible assets other than goodwill Goodwill Property, plant and equipment ,813 30,465 1,880,079 3,313,401 10,773,076 Tax assets 17 17,663 Deferred tax assets ,323 Total noncurrent assets Total assets 16,849,806 20,484,430 65, , ,775 6,596 2,093,308 3,727,605 10,982, ,962 17,651,597 22,631,146 The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

7 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQUITY LIABILITIES Note Current liabilities Other financial liabilities ,624,615 2,039,787 Trade and other accounts payables ,489,396 1,557,736 Accounts payable to related entities Other provisions 20 12,411 27,856 Tax liabilities 17 17,889 11,583 Other nonfinancial liabilities 21 2,685,386 2,871,640 Total current liabilities 5,829,732 6,509,107 Noncurrent liabilities Other financial liabilities ,389,012 7,859,985 Accounts payable , ,887 Other provisions ,140 1,122,247 Deferred tax liabilities 17 1,051, ,228 Employee benefits 22 74,102 45,666 Other nonfinancial liabilities ,401 77,567 Total noncurrent liabilities 10,151,003 10,795,580 Total liabilities 15,980,735 17,304,687 EQUITY Share capital 24 2,545,705 2,389,384 Retained earnings , ,303 Treasury Shares Other reserves (178) 1,320,179 (178) 2,054,312 Parent's ownership interest 4,401,896 5,238,821 Noncontrolling interest ,799 87,638 Total equity 4,503,695 5,326,459 Total liabilities and equity 20,484,430 22,631,146 The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

8 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME BY FUNCTION For the period ended Note Revenue 25 12,093,501 Cost of sales (9,624,501) Gross margin 2,469,000 Other income ,645 Distribution costs (957,072) Administrative expenses (980,660) Other expenses (401,021) Other gains/(losses) 33,524 Gains (losses) from operating activities 541,416 Financial income 90,500 Financial costs 26 (430,034) Share of profit of investments accounted for using the equity method (6,455) Foreign exchange gains/(losses) 28 (130,201) Result of indexation units 7 Income (loss) before taxes 65,233 Income (loss) tax expense / benefit 17 (142,194) NET INCOME (LOSS) FOR THE PERIOD (76,961) Income (loss) attributable to owners of the parent (109,790) Income (loss) attributable to noncontrolling interest 13 32,829 12,924,537 (10,054,164) 2,870, ,565 (1,025,896) (1,136,115) (408,703) (55,410) 585,814 72,828 (462,524) 1,954 (482,174) 214 (283,888) 20,069 (263,819) (281,114) 17,295 Net income (loss) for the year (76,961) (263,819) EARNINGS PER SHARE Basic earnings (losses) per share (US$) 29 ( ) Diluted earnings (losses) per share (US$) 29 ( ) ( ) ( ) The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

9 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the periods ended Note NET INCOME (LOSS) Components of other comprehensive income that will be reclassified to income before taxes Currency translation differences (76,961) (263,819) Gains (losses) on currency translation, before tax 28 Other comprehensive income, before taxes, currency translation differences Cash flow hedges Gains (losses) on cash flow hedges before taxes 18 Other comprehensive income (losses), before taxes, cash flow hedges Other components of other comprehensive income (loss), before taxes Income tax relating to other comprehensive income that will be reclassified to income (650,439) (629,858) (650,439) (629,858) (163,993) 128,166 (163,993) 128,166 (814,432) (501,692) Income tax related to cash flow hedges in other comprehensive income 47,979 (19,345) Income taxes related to components of other comprehensive income that will be reclassified to income 47,979 (19,345) Other comprehensive income (loss) Total comprehensive income (loss) (766,453) (843,414) (521,037) (784,856) Comprehensive income (loss) attributable to owners of the parent (830,502) (768,457) Comprehensive income (loss) attributable to noncontrolling interests (12,912) (16,399) TOTAL COMPREHENSIVE INCOME (LOSS) (843,414) (784,856) The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

10 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to owners of the parent Change in other reserves Currency Cash flow Shares based Other Total Parent's Non Share Treasury translation hedging payments sundry other Retained ownership controlling Total Note capital shares reserve reserve reserve reserve reserve earnings interest interest equity Equity as of January 1, ,389,384 (178) (589,991) (34,508) 21,011 2,657,800 2,054, ,303 5,238,821 87,638 5,326,459 Total increase (decrease) in equity Comprehensive income Gain (losses) 24 (109,790) (109,790) 32,829 (76,961) Other comprehensive income (603,880) (116,832) (720,712) (720,712) (45,741) (766,453) Total comprehensive income (603,880) (116,832) (720,712) (109,790) (830,502) (12,912) (843,414) Transactions with shareholders Equity issuance , , ,321 Increase (decrease) through transfers and other changes, equity ,631 (22,052) (13,421) (149,323) (162,744) 27,073 (135,671) Total transactions with shareholders 156,321 8,631 (22,052) (13,421) (149,323) (6,423) 27,073 20,650 Closing balance as of ,545,705 (178) (1,193,871) (151,340) 29,642 2,635,748 1,320, ,190 4,401, ,799 4,503,695 The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

11 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to owners of the parent Change in other reserves Currency Cash flow Shares based Other Total Parent's Non Share Treasury translation hedging payments sundry other Retained ownership controlling Total Note capital shares reserve reserve reserve reserve reserve earnings interest interest equity Equity as of January 1, ,501,018 (203) 3,574 (140,730) 5,574 2,666,682 2,535,100 1,076,136 Total increase (decrease) in equity Comprehensive income Gain (losses) 24 (281,114) Other comprehensive income (593,565) 106,222 (487,343) Total comprehensive income (593,565) 106,222 (487,343) (281,114) Transactions with shareholders Equity issuance ,570 Dividends 24 (25) 25 Increase (decrease) through transfers and other changes, equity 2433 (179) 15,437 (8,882) 6, Total transactions with shareholders 888, ,437 (8,882) 6, ,112,051 (281,114) (487,343) 108,634 17,295 (33,694) (768,457) (16,399) 5,220,685 (263,819) (521,037) (784,856) 888, ,570 6,657 (4,597) 2, ,227 (4,597) 890,630 Closing balance as of ,389,384 (178) (589,991) (34,508) 21,011 2,657,800 2,054, ,303 5,238,821 87,638 5,326,459 The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

12 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT METHOD Cash flows from operating activities Cash collection from operating activities Proceeds from sales of goods and services Other cash receipts from operating activities Payments for operating activities Payments to suppliers for goods and services Payments to and on behalf of employees Other payments for operating activities Interest received Income taxes refunded (paid) Other cash inflows (outflows) Net cash flows from operating activities 13,367,838 96,931 Cash flows used in investing activities Cash flows used to obtain control of subsidiaries or other businesses 518 Cash flows used in the purchase of non controlling interest Other cash receipts from sales of equity or debt instruments of other entities 524,370 Other payments to acquire equity or debt instruments of other entities (474,656) Amounts raised from sale of property, plant and equipment 564,266 Purchases of property, plant and equipment (1,440,445) Purchases of intangible assets (55,759) Payment from other longterm assets Other cash inflows (outflows) 6 (17,399) Net cash flow from (used in) investing activities Cash flows from (used in) financing activities Amounts raised from issuance of shares Payments to acquire or redeem the shares of the entity Amounts raised from longterm loans Amounts raised from shortterm loans Loans repayments Payments of finance lease liabilities Dividends paid Interest paid Other cash inflows (outflows) Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change Effects of variation in the exchange rate on cash and cash equivalents Net increase (decrease) in cash and cash equivalents CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD Note 6 For the periods ended (8,823,007) (2,433,652) (528,214) 11,589 (108,389) (251,657) 13,406,275 4,638 (9,570,723) (2,405,315) (31,215) 11,310 (83,033) 76,761 1,331,439 1,408,698 (899,105) 156,321 4,661 1,042, ,151 (2,315,120) (394,131) (35,362) (368,789) (13,777) (1,320,226) (887,892) (107,615) (995,507) 1,984,903 CASH AND CASH EQUIVALENTS AT END OF PERIOD 6 989, (5,517) (497) 270,485 (440,801) 225,196 (1,381,786) (43,484) 22,144 75,448 (1,278,812) 888,949 2,043,518 1,101,159 (1,952,013) (423,105) (29,694) (361,006) (62,013) 1,205,795 1,335,681 (1,041) 1,334, ,263 1,984,903 The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

13 LATAM AIRLINES GROUP S.A AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014 NOTE 1 GENERAL INFORMATION LATAM Airlines Group S.A. (the Company ) is a public company registered with the Chilean Superintendency of Securities and Insurance (SVS), under No.306, whose shares are quoted in Chile on the Stock Brokers Stock Exchange (Valparaíso), the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange ( NYSE ) in New York in the form of American Depositary Receipts ( ADRs ) and in Brazil BM & FBOVESPA S.A. Stock Exchange, Mercadorias e Futuros, in the form of Brazilian Depositary Receipts ( BDRs ). Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are performed directly or through its subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia. The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca. Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the SVS and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission ( SEC ) of that country, with respect to the issuance of ADRs, and the Federal Republic of Brazil and the Comissão de Valores Mobiliarios ( CVM ) of that country, as it pertains to the issuance of BDRs. The Board of the Company is composed of nine members who are elected every two years by the ordinary shareholders' meeting. The Board meets in regular monthly sessions and in extraordinary sessions as the corporate needs demand. Of the nine board members, three form part of its Directors Committee which fulfills both the role foreseen in the Corporations Law and the functions of the Audit Committee required by the Sarbanes Oxley Law of the United States of America and the respective regulations of the SEC. The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Inversiones Nueva Costa Verde Aeronáutica Limitada, Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A., Inversiones Puerto Claro Dos Limitada, Inversiones La Espasa Dos y Cía. Ltda., Inversiones Puerto Claro Dos y Cía. Limitada and Inversiones Mineras del Cantábrico S.A. owns 25.49% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.

14 2 2014, the Company had a total of 1,622 registered shareholders. At that date approximately 7.69 % of the Company s share capital was in the form of ADRs and approximately 0.53% in the form of BDRs. For the period ended 2014, the Company had an average of 53,300 employees, ending this period with a total of 53,072 employees, spread over 10,077 Administrative employees, 6,986 in Maintenance, 17,517 in Operations, 9,237 in Cabin Crew, 4,009 in Controls Crew, and 5,246 in Sales.

15 3 The main subsidiaries included in these consolidated financial statements are as follows: a) 2014 Participation rate Statement of financial position Net Income Tax No. Company Country of origin Functional Currency Direct ownership interest Indirect ownership interest Total ownership interest Assets Liabilities Equity Gain (loss) % % % Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Lantours Division Servicios Terrestres S.A. and Subsidiaries Chile US$ Inmobiliaria Aeronáutica S.A. Chile US$ Lan Pax Group S.A. and Subsidiaries (1) Chile US$ Lan Perú S.A. Peru US$ Lan Chile Investments Limited and Subsidiaries (1) Cayman Islands US$ Lan Cargo S.A. Chile US$ Connecta Corporation U.S.A. US$ Prime Airport Services Inc. and Subsidiary (1) U.S.A. US$ Transporte Aéreo S.A. Chile US$ Ediciones Ladeco América S.A. Chile CLP Aircraft International Leasing Limited U.S.A. US$ Fast Air Almacenes de Carga S.A. Chile CLP Ladeco Cargo S.A. Chile CLP Laser Cargo S.R.L. Argentina ARS Lan Cargo Overseas Limited and Subsidiaries (1) Lan Cargo Inversiones S.A. and Subsidiary (1) Inversiones Lan S.A. and Subsidiaries (1) Bahamas Chile Chile US$ CLP CLP TAM S.A. and Subsidiaries (1) (2) Brazil BRL ,229 39, , ,470 2, ,979 27,431 18, ,570 9, ,634 45,589 16,035 6,817,698 2,289 16,854 1,065, , ,772 28,853 22, , , ,686 59,768 14,746 5,809, ,066 (426,016) 11,075 2, ,207 (1,422) (4,777) 220,292 (484) 5, (97) 12,218 (12,711) 1, ,634 2,074 1,906 (114,511) 1,058 2,844 (9,966) (8,983) 2, (84,603) (4,276) (4,546) 171,655 (1) The Equity reported corresponds to Equity attributable to owners of the parent, does not include Noncontrolling interest. (2) The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a % participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company. During 2014 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of 250,000.

16 4 b) 2013 Participation rate Statement of financial position Net Income Tax No. Company Country of origin Functional Currency Direct ownership interest % Indirect ownership interest % Total ownership interest % Assets Liabilities Equity Gain (loss) Lantours Division Servicios Foreign Foreign Foreign Foreign Terrestres S.A. and Subsidiaries Inmobiliaria Aeronáutica S.A. Lan Pax Group S.A. and Subsidiaries (1) Lan Perú S.A. Lan Chile Investments Limited and Subsidiaries (1) Lan Cargo S.A. Connecta Corporation Prime Airport Services Inc. and Subsidiary (1) Transporte Aéreo S.A. Ediciones Ladeco América S.A. Chile Chile Chile Peru Cayman Islands Chile U.S.A. U.S.A. Chile Chile US$ US$ US$ US$ US$ US$ US$ US$ US$ CLP Foreign Aircraft International Leasing Limited U.S.A. US$ Foreign Foreign Fast Air Almacenes de Carga S.A. Ladeco Cargo S.A. Laser Cargo S.R.L. Lan Cargo Overseas Limited and Subsidiaries (1) Lan Cargo Inversiones S.A. and Subsidiary (1) Inversiones Lan S.A. and Subsidiaries (1) Chile Chile Argentina Bahamas Chile Chile CLP CLP ARS US$ CLP CLP Foreign TAM S.A. and Subsidiaries (1) (2) Brazil BRL ,722 38, , ,516 4, , , ,693 10, ,250 39,419 15,362 8,695,458 2,210 12, , ,109 5, ,527 2,171 18, , ,805 3, ,109 48,630 8,933 7,983, ,429 (246,521) 11,407 (829) 359,113 (2,162) (4,884) 239,294 (560) (2,805) 6, (149) 96,817 (9,937) 6, , ,231 (104,966) 3,755 (1) 3,685 (356) 78 (4,129) (5) 1,802 (2) (34) 111,043 (1,246) 517 (458,475) (1) The Equity reported corresponds to Equity attributable to owners of the parent, does not include Noncontrolling interest. (2) The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a % participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company. During 2013 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of 1,650,000.

17 5 Additionally, has proceeded to consolidate special purpose entities, denominated: JOL, destined to the aircraft financing and Chercán Leasing Limited, destined to the aircraft advance financing and Guanay Finance Limited, destined to the issuance of securitized bond, as the Company has major risks and benefits associated to them according to standards issued by the International Financial Reporting Standards: Consolidated Financial Statement (IFRS 10) and private investment funds in which the parent company and subsidiaries are contributors. All the entities controlled have been included in the consolidation. Changes in the scope of consolidation between January 1, 2013 and 2014, are detailed below: (1) Incorporation or acquisition of companies On October 11, 2013, TAM S.A., under each contracts of sale of shares with Lan Cargo Overseas Limited (indirect subsidiary of LATAM Airlines Group S.A.), TADEF, Participação e Consultoria Empresarial Ltda. y Jochman Participações Ltda. acquired the 100% of the shares of Aerolinhas Brasileiras S.A. (ABSA). The effect of this transaction on LATAM Airlines Group S.A. corresponds to the purchase of shares on ABSA that possessed the companies TADEF, Participação e Consultoria Empresarial Ltda. and Jochman Participações Ltda., which represented the noncontrolling interest on the acquired company. Lan Pax Group S.A. is the direct owner of 55% of Aerolane Líneas Aéreas Nacionales del Ecuador S.A., during 2014 obtains the 100% of the economic rights, through its participation in the company Holdco Ecuador S.A., who is owner of 45% remaining of Aerolane Líneas Aéreas Nacionales del Ecuador S.A. By this Lan Pax Group S.A. is owner of 20% of shares with voting rights and is owned of 100% with the economic rights. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements Basis of Preparation The consolidated financial statements of LATAM Airlines Group S.A. are for the period ended 2014, and have been prepared in accordance with Standards an Instructions by Chilean Superintendency of Securities and Insurance ( SVS ), which, except as provided by its Office Circular No. 856, as detailed in the following paragraph are in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ( IASB ) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC). On September 26, 2014 the law No. 20,780 was promulgated, and on September 29, 2014 was published in the Official Journal of the Republic of Chile, which introduces modifications to the tax system in Chile concerning income tax, among other matters. In relation to the Law,

18 6 on October 17, 2014 the SVS issued Office Circular No. 856, in which it decided that the restatement of assets and liabilities by deferred income taxes that occur as a direct effect of the First Category Tax rate increase introduced by Law No. 20,780 (Tax reform) will be held in equity and not as indicates the IAS 12. In notes 2.17 and 17 the criteria and impacts related to the registration of the effects of the reform and the implementation of the Circular cited are detailed. The consolidated financial statements have been prepared under the historiccost criterion, although modified by the valuation at fair value of certain financial instruments. The preparation of the consolidated financial statements in accordance with described above requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements. In order to facilitate comparison, there have been some minor reclassifications to the consolidated financial statements corresponding to the previous year. (a) Accounting pronouncements with implementation effective from January 1, 2014: (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after Amendment to IAS 32: Financial instruments: Presentation Amendments to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of interests in other entities and IAS 27: Separate financial statements. Amendment to IAS 36: Impairment of assets Amendment to IAS 39: Financial instruments: Recognition and measurement December 2011 October 2012 May 2013 June /01/ /01/ /01/2014 The Company adopted in advance this amendment at /01/2014 Amendment to IAS 19: Employee Benefits November /01/2014 (ii) Interpretations IFRIC 21: Levies May /01/2014

19 7 (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after (ii) Improvements Improvements to the International Financial Reporting Standards (2012): IFRS 2: Sharebased Payment; IFRS 3: Business Combinations Therefore, IFRS 9, IAS 37, and IAS 39 are also modified; IFRS 8: Operating Segments, IFRS 13: Fair Value Measurement, IFRS 9 and IAS 39 were consequently changed; IAS 16: Property, Plant and Equipment, and IAS 38: Intangible Assets; and IAS 24: Related Party Disclosures. Improvements to the International Financial Reporting Standards (2013): IFRS 1: Firsttime Adoption of International Financial Reporting Standards; IFRS 3: Business Combinations; IFRS 13: Fair Value Measurement; and IAS 40: Investment Property. December 2013 December /01/ /01/2014 The application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company. (b) Accounting pronouncements effective implementation starting on January 1, 2015 and following: (i) Standards and amendments Date of issue Mandatory Application: Annual periods beginning on or after IFRS 9: Financial instruments. IFRS 15: Revenue from contracts with customers. Amendment to IFRS 9: Financial instruments. Amendment to IFRS 11: Joint arrangements. Amendment to IAS 16: Property, plant and equipment, and IAS 38: Intangible assets. Amendment to IAS 27: Separate financial statements. December 2009 June 2014 November 2013 May 2014 May 2014 August /01/ /01/ /01/ /01/ /01/ /01/2016

20 8 (ii) Standards and amendments Date of issue Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures. September 2014 Mandatory Application: Annual periods beginning on or after 01/01/2016 Amendment IAS 1: Presentation of Financial Statements Amendment to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of Interests in other entities and IAS 28: Investments in associates and joint ventures. December 2014 December /01/ /01/2016 (iii) Improvements Improvements to International Financial Reporting Standards ( cycle): IFRS 5 Noncurrent assets held for sale and discontinued operations; IFRS 7 Financial instruments: Disclosures; IAS 19 Employee benefits and IAS 34 Interim financial reporting. September /01/2016 The Company s management believes that the early adoption of the standards, amendments and interpretations described above but not yet effective would not have had a significant impact on the Company s consolidated financial statements in the year of their first application. The Company only has early adopted the amendment to IAS Basis of Consolidation (a) Subsidiaries Subsidiaries are all the entities (including specialpurpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition. Intercompany transactions, balances and unrealized gains on transactions between the Company s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.

21 9 To account for and identify the financial information to be revealed when carrying out a business combination, such as the acquisition of an entity by the Company, shall apply the acquisition method provided for in IFRS 3: Business combination. (b) Transactions with noncontrolling interests The Company applies the policy of considering transactions with noncontrolling interests, when not related to loss of control, as equity transactions without an effect on income. (c) Sales of subsidiaries When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the noncontrolling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses). If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value are subsequently accounted using the equity method. (d) Investees or associates Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost Foreign currency transactions (a) Presentation and functional currencies The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries. (b) Transactions and balances Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.

22 10 (c) Group entities The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency other than the presentation currency are translated to the presentation currency as follows: (i) Assets and liabilities of each consolidated statement of financial position presented are translated at the closing exchange rate on the consolidated statement of financial position date; (ii) The revenues and expenses of each income statement account are translated at the exchange rates prevailing on the transaction dates, and (iii) All the resultant exchange differences by conversion are shown as a separate component in Other comprehensive income. The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar. In the consolidation, exchange differences arising from the translation of a net investment in foreign entities (or local with a functional currency different to that of the parent), and of loans and other foreign currency instruments designated as hedges for these investments, are recorded within net equity. When the investment is sold, these exchange differences are shown in the consolidated statement of income as part of the loss or gain on the sale. Adjustments to the Goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed Property, plant and equipment The land of LATAM Airlines Group S.A. and Subsidiaries is recognized at cost less any accumulated impairment loss. The rest of the Property, plant and equipment are registered, initially and subsequently, at historic cost less the corresponding depreciation and any impairment loss. The amounts of advance payments to aircraft manufacturers are capitalized by the Company under Construction in progress until receipt of the aircraft. Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or shown as a separate asset only when it is probable that the future economic benefits associated with the elements of Property, plant and equipment are going to flow to the Company and the cost of the element can be determined reliably. The value of the component replaced is written off in the books at the time of replacement. The rest of the repairs and maintenance are charged to the results of the year in which they are incurred. Depreciation of Property, plant and equipment is calculated using the straightline method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown. The residual value and useful life of assets are reviewed, and adjusted if necessary, once per year.

23 11 When the carrying amount of an asset is higher than its estimated recoverable amount, its value is reduced immediately to its recoverable amount (Note 2.8). Losses and gains on the sale of Property, plant and equipment are calculated by comparing the compensation with the book value and are included in the consolidated statement of income Intangible assets other than goodwill (a) Brands, Airport slots and Loyalty program Brands, Airport slots and Coalition and loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows: Airport slots Air transport CGU Loyalty program Coalition and loyalty program Multiplus CGU Brand Air transport CGU (See Note 15) The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period. The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A. The Brands, airport Slots and Loyalty program were recognized in fair values determined in accordance with IFRS 3, as a consequence of the business combination with TAM and Subsidiaries. (b) Computer software Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 7 years. Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets others than Goodwill when they have met all the criteria for capitalization Goodwill Goodwill represents the excess of acquisition cost over the fair value of the Company s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.

24 Borrowing costs Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated income statement when they are accrued Losses for impairment of nonfinancial assets Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Nonfinancial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date Financial assets The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at the time of initial recognition, which occurs on the date of transaction. (a) Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss are financial instruments held for trading and those which have been designated at fair value through profit or loss in their initial classification. A financial asset is classified in this category if acquired mainly for the purpose of being sold in the near future or when these assets are managed and measured using fair value. Derivatives are also classified as held for trading unless they are designated as hedges. The financial assets in this category and have been designated initial recognition through profit or loss, are classified as Cash and cash equivalents and Other current financial assets and those designated as instruments held for trading are classified as Other current and noncurrent financial assets. (b) Loans and receivables Loans and receivables are nonderivative financial instruments with fixed or determinable payments not traded on an active market. These items are classified in current assets except for those with maturity over 12 months from the date of the consolidated statement of financial position, which are classified as noncurrent assets. Loans and receivables are included in trade and other accounts receivable in the consolidated statement of financial position (Note 2.12). The regular purchases and sales of financial assets are recognized on the trade date the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when

25 13 the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. The financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method. At the date of each consolidated statement of financial position, the Company assesses if there is objective evidence that a financial asset or group of financial assets may have suffered an impairment loss Derivative financial instruments and hedging activities Derivatives are booked initially at fair value on the date the derivative contracts are signed and later they continue to be valued at their fair value. The method for booking the resultant loss or gain depends on whether the derivative has been designated as a hedging instrument and if so, the nature of the item hedged. The Company designates certain derivatives as: (a) Hedge of the fair value of recognized assets (fair value hedge); (b) Hedge of an identified risk associated with a recognized liability or an expected highly Probable transaction (cashflow hedge), or (c) Derivatives that do not qualify for hedge accounting. The Company documents, at the inception of each transaction, the relationship between the hedging instrument and the hedged item, as well as its objectives for managing risk and the strategy for carrying out various hedging transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged. The total fair value of the hedging derivatives is booked as Other noncurrent financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities. (a) Fair value hedges Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged. (b) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income under Other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.

26 14 In case of variable interestrate hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest. For fuel price hedges, the amounts shown in the statement of Other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used. For foreign currency hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income. When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as Other gains (losses). (c) Derivatives not booked as a hedge The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in Other gains (losses) Inventories Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale Trade and other accounts receivable Trade accounts receivable are shown initially at their fair value and later at their amortized cost in accordance with the effective interest rate method, less the allowance for impairment losses. An allowance for impairment loss of trade accounts receivable is made when there is objective evidence that the Company will not be able to recover all the amounts due according to the original terms of the accounts receivable. The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are considered indicators that the receivable has been impaired. The amount of the provision is the difference between the book value of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate. The book value of the asset is reduced by the amount of the allowance and the loss is shown in the consolidated statement of income in Cost of sales. When an account receivable is written off, it is charged to the allowance account for accounts receivable.

27 Cash and cash equivalents Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other shortterm and highly liquid investments Capital The common shares are classified as net equity. Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares Trade and other accounts payables Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost and are valued according to the method of the effective interest rate Interestbearing loans Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method. Financial liabilities are classified in current and noncurrent liabilities according to the contractual payment dates of the nominal principal Current and deferred taxes The expense by current tax is comprised of income and deferred taxes. The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income. Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged. Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences.